I recently met with a man living in New York’s Hudson Valley who had decided to put a solar energy array on his roof by way of one of those “no money down” PV leases. Under the terms of this arrangement, he was to play electricity vassal, with a large solar leasing company based in California acting as the feudal lord. It seemed like a pretty good deal. He would be helping the environment and, though he would have a small lease payment, would get a net reduction in the cost of his energy bills (probably). Best of all, he would be obviating that most dreaded stumbling block on the way to an alternative energy decision… the high up-front cost. He had signed a contract and he even showed me where Central Hudson, his utility, had been out to install a special PV meter in accordance with NY’s net metering standard. But then things started getting weird.

The initial part of the process had been easy. Most of it was even done over the phone. He had called in after hearing a radio ad. The pitch was good and the ensuing paperwork was exchanged online. He provided financial info, passed a credit check, and e-signed a contract for a modest, 15 panel array to be installed on his roof. The utility came out to install the solar meter and everything was zipping along. And then… nothing.

He was told that there would be approvals and permits that would have to be obtained from the state and local authorities and so the slowing down of the process seemed normal. But then it was a month; then two; then three. A few times people showed up to take pictures of his house though not even bothering to come to the door. Once, when he questioned one of these photographers, he was told that they were there on behalf of the solar leasing company. It was now winter and he was sure nothing would be done until the following spring. At that point, someone showed up claiming to be an engineer and saying he needed to get up on the roof. Two days later he received an email from the solar leasing company informing him that his roof was determined to be structurally inadequate and instructing him to e-sign a document letting the leasing company out of their contract. No further explanations were forthcoming. No options were offered to fortify the roof or to change the design of the array. He signed the release and the relationship was ended forever.

The whole affair did not sit well with him. He called us to get the opinion of a local company. We came out and looked around. We had a structural engineer check out his roof. Most importantly, we explained what we were doing and why every step of the way. We designed a system that was easily supported by his roof (which was not structurally compromised at all) and produced more energy than the leasing company’s array. We helped him get financing from a local bank and now he will be installing his own system and deriving all the benefits thereof.

So why the prolix anecdote? Its not a big deal. One company couldn’t help the guy and the other could. End of story. right? Wrong. The above is a minor symptom of a much uglier disease. Solar leasing is artificially inflating the cost of solar energy installations, providing tax shelters for big investors, and, possibly, stealing from the American taxpayer.

The idea behind solar leasing is pretty simple. It works a lot like leasing a car. In this way, the economic hurdle is cleared for people who feel they cannot make use of solar energy because of the upfront cost to install PV panels. Enter the middle man. Solar leasing companies like Solarcity or SunRun will own and maintain the systems as well as navigate the byzantine collection of state and federal incentives and tax policies along with local permitting requirements. They do this in exchange for a customer making a lease payment while providing little to no money down. Of course, the amortization means that the actual cost of the array is triple that of a purchased system for the homeowner without benefit of owning anything or getting those government incentives, but lets put that aside for now.

So, the leasing company gets the tax incentives and rebates and the payments from the customer. The homeowner gets a 20 year obligation to pay the lease on a product warranted for 25 years and theoretically cheaper electricity with nothing or little due upfront. The homeowner also gets a big fat plastic hassle if he ever wants to sell his house. The merits of this arrangement are open to debate, but nothing nefarious so far, right?

The Feds would beg to differ and empirical research backs their claim.

The inspector general at the Treasury Department is probing SolarCity and other leasing companies for their use of “fair market value” pricing on leased systems in filing for the 30% federal tax credit for installing PV.

That type of reporting in lieu of actual cost of installation has been standard operating procedure for the solar leasing industry, but a little scratching reveals that the reported price for these leased systems is way higher than for customer owned PV arrays. So, the middle man is pocketing unfairly large tax incentives on the backs of the American taxpayer and applying it straight to the bottom line with nothing going to the customer. Then, of course, there is the charming practice of bundling those incentives into tax equity funds and selling them off as tax shelters. Nice, huh.

To break it down, the evidence demonstrates that, in the case of SolarCity in particular, the cost of leased systems is 50% more than customer owned systems. Conservative estimates would put the cost of those inflated incentives to tax payers for SolarCity alone to be in excess of 17 million dollars since 2008.

Its gross and it’s a manipulation of people’s good intentions in wanting to use alternative energy. It also is a scam that fleeces taxpayers and that is always infuriating. There is also the fact that customers in NY and CT are sending their hard earned money to California and Arizona instead of keeping it in the local economy. But the worst of these shenanigans may be in how they have hurt the US in joining the rest of the industrialized world in its implementation of residential PV.

In many places in America, solar power is already more cost effective than utility-provided electricity and the disparity is growing day by day. But leasing companies don’t have an incentive to pass those savings on to their customers. If a utility sells electricity for 16 cents a kilowatt hour and a leasing company is charging 13 cents to its customers in the form of a lease payment it seems like a pretty good deal. But consider if it only costs that leasing company 9 cents a kilowatt hour to generate that power, or even less. The majority of residential solar arrays in the US are leased and not owned. This means that solar prices in the US will never fall to levels seen in countries with advanced solar markets like Germany because middle men and not homeowners are pocketing the difference between clean energy and utility provided electricity.

My advice to the American consumer is to talk to your local solar company. They are already there in the community with a reputation to protect. Their success is contingent on your investment in solar being as lucrative as it can be, not on fleecing taxpayers of soaking lessees. Get a smaller system if you have to and use local banks and lending institutions to help finance solar arrays. Own the power you produce and the benefits you derive. It will be an important step in bringing America around to its rightful place as an energy leader and in saving you the most money to boot.